Brazil consultant, government trade blame for ethanol woes

27 March 2012 20:27[Source: ICIS news]

SAO PAULO (ICIS)--A Brazilian government official on Tuesday downplayed the notion that Brazil’s ethanol sector is struggling because gasoline prices in Brazil are kept artificially low to help keep inflation under control.

“The price of gasoline in Brazil is the equivalent of $170/bbl,” said Ricardo Dornelles, director of renewable fuels at Brazil’s energy ministry, adding that gasoline prices are not to blame for ethanol woes.

His remarks followed a comment by a previous speaker, who suggested the ethanol sector in Brazil was struggling to grow because the government had done a poor job mitigating risk for the sector.

Ethanol makers are particularly opposed to what the sector claims is Brazil’s longstanding policy to control the price of gasoline, a strategy they say puts a cap on the price of ethanol and discourages new investments in the sector.

This is because hydrous ethanol demand in Brazil can be significantly impacted by the price of gasoline, as drivers in Brazil usually choose gasoline over ethanol when the two fuels cost about the same.

Hydrous ethanol is used as a stand-alone fuel in flexible-fuel vehicles (FFVs), competing directly with gasoline.

Earlier this month, ethanol was more competitive than gasoline in only two of Brazil’s 26 states.

Dornelles rejected the idea that gasoline prices were hurting ethanol, adding that Brazil even taxes gasoline more heavily than it does ethanol.

The taxes on gasoline are three times those levied on ethanol, he said.

The problem is that Brazilian ethanol prices are too high, Dornelles added.

He also downplayed the idea that Brazil controls the price of gasoline, saying that the average difference with international prices was minimal over a period of 10 years.